Open any paper or industry journal at the moment and you’re quite likely to find an article referring to social media; Twitter, Facebook, MySpace, LinkedIn and blogging are all hot topics, just to name a few. Much of the commentary you’ll read urges action, with an overriding message of “get on board before it’s too late”.

But what actually is social media and how valuable is it, particularly for a real estate business?

Put simply, social media is a type of on-line media that allows for two-way communication. It’s different to traditional media, which delivers a message but doesn’t allow the recipient to participate. People like social media because it’s fun but because it’s relatively new, it’s also a moving feast and for businesses, social media is still really at the experimental stage.

According to the most recent inaugural Nielsen-Community Engine 2010 Social Media Benchmarking Study, more than 70% of Australian businesses plan to use social media in the coming year, up from just 40% in 2008. A full 50% of businesses felt that if they do not employ social media, they risk losing touch with their customers.

Despite this sense of urgency, the study also found that many of those businesses are still coming to grips with how to measure the success of social media - nearly one third said they had not measured the success or did not know how to.

And herein lays the social media conundrum; the huge push to gather as many on-line followers or friends or connections as possible does not include much of an explanation as to why. The social media advocates will tell you it’s all about traffic and more is better. And it’s true there are undoubtedly benefits to increased web traffic - higher search engine rankings and theoretically more exposure to your prospective clients. But we must stop at this point to ask, at what cost?

The critical part of the equation is the return on investment (ROI). The reality is there’s no point in having thousands of followers and spending hours every day on social media if there is no measurable return for the cost outlaid. And equally, there’s no point in becoming involved in social media at all without a clear strategy and set of objectives.

When you scratch the surface of all the hype, the current push for corporate involvement in social media is somewhat reminiscent of the dotcom frenzy between 1995 and 2000. At that time, market confidence was based purely on the possibility of future profits. Many investors overlooked traditional business measurements in favour of exciting new technological advancements. In fact, the standard dotcom business model actually relied on losing money to build market share, with the idea being that at some point in the future, businesses would work out a way to turn that market share into money. A popular saying was “get large or get lost” and many dotcom businesses actually had no source of income at all.

The consequence of basing business decisions on imagination rather than firm business principles (known at the time as “blue-skying”) was a spectacular sharemarket crash - $5 trillion in the market value of technology companies wiped out between March 2000 and October 2002.

It was a wake-up- call to business owners to stay true to their core business models and instead of looking at the web as a complete replacement of the traditional ways of doing business, to use the new channel to expand their reach and potential.

That lesson of fundamentals should not be forgotten in the midst of the current social media frenzy.

There’s no doubt that more leads are now coming via the web, but when it comes to on-line, you clearly need to walk before you try to run. The first priority with any real estate business in the on-line space should be around your company’s website. As we discussed in the previous series , getting your content right and your site search engine friendly is the very first step. At this early stage, it’s critical to formulate a way to measure the outcome of your on-line activity - the number of unique visitors to the site, how many of those visitors turn onto leads and how many of those leads turn into a sale. These numbers are what you will use to calculate your ROI and define your on-line strategy going forward.

Next you can consider paid marketing, part two of our on-line series. Once again, you can easily measure the effectiveness of any campaign by carefully measuring the results.

Venturing into social media is a whole other ball game and one that should not be rushed into. You need to consider carefully if your business is really ready to take the step and if you are able to devote sufficient resources to making an impact. Estimates vary, but most people who are active in social media say it requires at least a couple of dedicated hours per day for any meaningful results. As with web-sites, just sticking up a static profile is highly unlikely to result in any outcome and in many ways, is worse than doing nothing at all.

If you do decide to proceed, you’ll need to understand the rules and etiquette of the particular sites you become involved in or you’ll quickly achieve the opposite effect of the one you’re after. It’s a good idea to spend some time looking at what others are doing and how it’s working before doing anything yourself. Unlike traditional marketing, social media is all about two way communication and you need to listen carefully and engage people with information that interests them or they’ll quickly block you or drop you from their lists.

One of the positive ways you can immediately use social media effectively is by monitoring what others might be saying about you and responding directly to those people - especially if they have a complaint. Bad news has always spread more quickly than good and this is particularly true via electronic media, where passing the message along is as easy as pressing a button. One way is via applications like Twilert which offer free notifications via email if people post messages on Twitter using your chosen keywords.

There are increasing numbers of social media consultants who offer to help businesses with strategy and implementation. As with any external advice, ensure the credibility and experience of the professional you choose. Be sure to ask, too, how they measure the success of a social media campaign and continue to be aware of your ROI. Remembering the basic business tenement of achieving a balance between costs and benefits will make decisions about strategy more straightforward.

There’s little doubt that social media is here to stay, but it’s also clear that the industry is still in its infancy. There’s plenty we have yet to understand about how it works and the impact it can have for business, particularly in the real estate industry.

The old adage about fools rushing in may well be appropriate for social media - rather than leaping in head-first without a clear understanding, take the time to carefully consider what’s best for your business.

To effectively target the people who are searching for your service, you first need to understand their on-line behaviour. According to a February 2010 report by on-line US researcher i-Crossing, more than 95% of all search traffic for non-brand keywords comes from the search engine results on the very first page.

These percentages are significantly higher than a recent IAB Europe and Insights Consultancy report which showed 70% of users give up after the first 20 results, but both figures confirm that page one visibility is the most certain path to success in Internet marketing.

Put simply, if your listing not in the front of the Internet searcher immediately, you’re much less likely to be in the running for their business.

There’s more than one way to get your website on page one though - as well as the ten “organic” search results which you can target through effective search engine optimisation (SEO), there are a number of paid advertising spots available too. This is the other side of search engine marketing, commonly known as SEM - paid search. For really effective on-line marketing, experts advise using a blend of each strategy to reach your potential customers.

Under the banner of paid search, there are a number of mediums available, including text, banner, video and audio advertisements. For each of these, there are two methods of pricing - cost per click (CPC) or cost per impression (CPI). With the first method, you only pay when a fee when a searcher clicks on your ad, no matter how many times it’s displayed. With the second method, you pay each time the ad is displayed, normally in bundles of thousands or millions.

Most relevant to the issue of appearing on page one search results is text ads, which can appear as sponsored links at the top and bottom or on each side of the search page. Text ads are a relatively new model of Internet advertising, gradually replacing the old model of banner ads which have become limited. The concept works around advertisers bidding for keywords or strings of keywords which consumers use to search for information. In the Google search engine, the most widely used search engine in Australia, these text ads are called Adwords and are charged by the cost per click method.

Once you’ve bid, the order in which the ads will appear on the search page is not straightforward - it doesn’t just depend on whose bid is highest. As with organic search results, the algorithm to determine the order of results is complicated and although guidelines are available, the precise formula is secret. What we do know is that the formula takes into account things like the relevance of the ad text and keywords, the advertisers account history, and historical click-throughs - in other words, the more relevant your ad and website content is to the consumer who is searching, the more likely your ad is to appear in front of that consumer.

It’s often said that searchers on the Internet have itchy back button fingers - they want the information they’re looking for straight up and they want it fast. If they don’t find it easily on your site, they’ll be off to look elsewhere without a second glance. The Internet is no place for trickery - there’s no point in using clever advertising to attract visitors to your site if when they get there, they don’t find what they’re looking for quickly. In fact, Google even measures the “bounce” rate of consumers who quickly leave a site after clicking on a text ad, and factors it into the Adword ordering algorithm. A high bounce rate will mean your ad is less likely to even be displayed.

One thing that is markedly different between SEO and paid search is the level of control you have over which page your visitors are directed to on your website (known as the landing page). With SEO, the search engine crawler decides which page is most relevant; with paid search, you get to choose. Once the consumer clicks on your ad, you can send them to a landing page designed specifically for the campaign, separate to the home page.

This means you have the ability to design a segmented marketing campaign, targeting a particular customer group and driving them back to content and offers on your website that are absolutely relevant to them.

There are other ways, too, to drive traffic to your website under the paid search strategy. One is placement targeted advertisements (formally known as site targeted advertisements) where a search engine places your text, banner, video or audio advertisement on relevant sites within their content network, again aiming to put your ad in front of a consumer who already has an interest in your product or service. Another is known as Adwords distribution, which is where your ad can be placed on relevant sites within a content network of website owners who make money from having ads displayed on their website.

There’s even a sophisticated way to ensure visitors who visit and leave your site continue to see your ads which is called “re-targetting”. This is the means by which a visitor is identified by a cookie when they arrive at your site and are then served up your ads after leaving and continuing to surf the web, prompting them to return to your website. You’re even able to choose the page they return to if they click on your ad again - a special offer or another targeted landing page.

Darren McCoy, Ray White’s Digital Strategy Manager, says planning is the key when it comes to being effective in search engine marketing.

“There’s no point in rushing off to do anything without thinking it through carefully - you’ll just get overwhelmed and stressed and fail to achieve the outcome you’re after anyway.”

“Unlike SEO where tweaking and experimenting doesn’t have a financial cost, you can easily throw your money away with poorly planned paid search. Worse, you could create a negative history with a poor click-through rate or a high bounce rate, both of which will affect your quality rating with the search engines.”

Darren says it is possible to manage your own paid search campaign but suggests budget should be a key decider in the equation.
“If you are spending a small amount of money, say $1000/month or less, you can use on-line tools to help choose keywords and set up your campaign. Google offers tools to see how many searches are taking place on each keyword, how popular the keyword is with other advertisers and the average price.”

“The important part is to optimise your site content first, particularly for the ad’s landing page. You only have one opportunity to grab the consumer’s attention if they click through.”

“In the medium level, say you were spending around $5000 a month, the search engines are likely to provide you with an account manager to help you maximise the results from your campaign.”

“If your spend increases to a high level, like $20000 a month, it’s best to enlist the support of an external agency or even employ someone internally to manage the process.”

Darren re-iterates that the most important thing to monitor is your return on investment (ROI).

“Whether you’re talking SEO or paid search, there is no point in just building raw traffic numbers. If you get all the factors right and deliver the right information to the right consumer, advertising on the Internet can be an incredibly effective form of marketing.”

“And unlike other forms of marketing, you have the unique benefit of immediately and precisely measuring exactly how effective each campaign is.”

The World Wide Web has come a long way since the launch of the first website back in 1990. In just 20 years, the Internet has literally exploded, both in the amount of information available and the number of people browsing it.

Although estimates vary, the total number of active websites is now thought to be approaching 200 million, with around a quarter of the Earth’s population on-line. In Australia the percentages of users is much higher, with around 80% of the population regularly using the services of the Internet.

And in terms of real estate, the most popular way consumers choose to search for property is now on-line; the October 2008 Nielson On-line Australian Property Search Report said than nine out of ten Australian property buyers use the Internet as a key research tool during their search. Although there are other popular means to search for property (53% of property consumers regularly use agent magazines and 63% use newspapers, just to name a couple) no other single marketing medium has such high penetration.

The reasons why the Internet has had such a dramatic effect on the real estate industry are obvious - consumers have embraced being able to quickly and easily search for available properties and local agents, locate detailed property information and location maps and see multiple photos and even videos.

With the trend set to continue, maintaining a solid on-line presence is fast becoming mandatory as part of the overall marketing strategy for any effective real estate business. But while it may be tempting to think gaining an on-line presence is as easy as creating an attractive website and waiting for the enquiries to flood in, these days a passive strategy is unlikely to result in success. The continuing flood of new information on the Internet is likely to leave your website just one more drop in the ocean - unless making it easy for people to find the site forms a big part of your on-line strategy.

One key element to consider is Search Engine Optimisation, otherwise known as SEO. SEO is the process of improving traffic to a website from search engines via unpaid search results. It’s a completely separate stream of Search Engine Marketing (SEM) to paid inclusion in search results. Put simply, if a consumer searches for property or an agent in your area, SEO aims to have your website ranked as highly as possible in the “organic” search results - ideally on the first page for maximum benefit. The higher your site appears in the search results, the more traffic you’re likely to get from that search engine.

To give you an idea, the dominant Australian search engine is Google, believed to have more than 65% market share. 15 million real estate related searches are made with Google’s search engine in Australia each month, representing a 35% growth in searches between January/February 2008 and January/February 2009. Google have found that 76% of all property consumers are searching once a week for suitable properties, while 25% of them are searching every day. They’re big numbers and numbers that are only likely to continue to grow.

As a strategy, SEO considers how the search engines rank websites as well what people search for, and here’s where it can get tricky. In the early days of the Internet, ranking was straightforward - the website URL would be submitted to the search engine, which would then send out a “crawler” to check the page for content. The page would then be indexed and ranked.

Around 1997, webmasters discovered they could use certain tactics like Meta tags (keywords inserted into the HTML coding of the site) to manipulate search engines and improve a site’s ranking. The term SEO was coined, splitting optimizers into two camps which some commentators have termed “white hat” and “black hat”. The former are those who use recommended techniques to maximise rankings and the latter are those who search for loopholes or use techniques which the search engines do not approve of, which are also known as spamdexing.

Black hat techniques include tricks such as loading web pages with excess keywords, even hiding the text by writing in the same colour as the site’s background, rendering the text invisible to the human eye but distorting the page’s relevance to the search engine crawlers. Another common black hat trap is known as “link farming”. Link farms are websites specifically set up for bulk hyperlinks, usually created by automated programs.

As time went by, the search engines developed more complex ranking algorithms taking several factors other than keywords and links into account and making it increasingly difficult for webmasters to manipulate the rankings. By 2004, search engines were incorporating a wide range of undisclosed factors; Google is now reported to include some 200 different features in its ranking algorithm.

Whether you are going to manage SEO yourself or get external help, ensuring you avoid black hat practitioners and strategies is essential - failing to do so can result in being banned from search engines, as more than one large company has discovered. In 2006, BMW Germany were found to have employed a deceptive strategy on their website resulting in crawlers being directed to completely different pages than humans would see, known as “doorway pages.” These pages were loaded with keywords in an attempt to improve the site’s ranking. When Google discovered the transgression, they immediately banned the site, although after the pages were removed and an apology issued by BMW, the site was eventually relisted.

There is a lot you can do to improve your website’s ranking ethically within the accepted guidelines and it starts by providing dynamic compelling information to your customers. In 2009, Google announced it would focus on real time searching, placing importance on current, fresh and unique content.

Darren McCoy, Ray White Group’s Digital Strategy Manager, says the real estate industry is ideally suited to generating content which can help improve rankings.

“The search engine algorithms are extremely sophisticated nowadays and no-one knows exactly what they consist of, but we do know that the uniqueness of content and frequency with which new content is added are key factors in optimising a website’s ranking.”

“As well as all the static information like about us pages, real estate offices can create new text for each property that is listed. Rehashing old text is just a wasted opportunity to attract both customers and search engine crawlers.”

“The crawlers are looking for differences - the higher you score in independence, the better your search results will be.”

Darren says on top of the site’s content, other factors which will influence ranking include the age of the domain name (established domains have an advantage) as well as quality relationship-based links with other sites and businesses (as opposed to the automatic link farming discussed earlier).

“New businesses coming into an established group have the advantage to leverage off the size and ranking of the franchisor’s existing on-line brand and relationships.”

The way in which a website is built will also affect the way in which crawlers can access the information, as well as the eventual ranking. Darren says it’s wise to ask the question early in the process to ensure SEO factors are taken into consideration by your web developer at the planning stage.

“It’s a mistake to build a web site and then think about SEO - at that point you might find even a consultant may be unable to help because of the platform that’s been used or the way in which the site’s been developed.”

“Once the initial optimisation is complete, SEO needs to be an ongoing consideration - it’s not a ‘set and forget’ proposition. Ranking has to be monitored and the site’s SEO tweaked regularly as required.”

Darren points out it’s another common error to focus only on the raw traffic numbers to a site - he says the real goal of SEO is to understand where the traffic is coming from and how much of it is converting to serious enquiry.

“Any on-line marketing success is not about volume, it’s about the quality of your conversion. There’s various tracking software which can help as well as the need for some subjective analysis.”

“It’s only when you are accurately measuring how the traffic is affecting your business that you’ll really know if your strategies are working.”

Unsurprisingly, Cliff wasn’t planning to always be a salesperson - he always had the view that he would one day own the office. But that was part of a five year succession plan; first he would take his time learning the business, literally from the ground up. Little did he know at that point that less than a year later he would be catapulted into the principal role and a few years after that, his property management business would be winning awards for exceptional growth.

The early days were hard - Cliff went from a healthy predictable salary travelling the country with numerous social functions to a nonexistent income and days filled with cold calling, door knocking and a healthy dose of rejection by the majority of people he came into contact with. Slowly he began to find his feet.

Three months into his new life the first shockwave hit - the principal of the business he was working in suddenly decided to sell. The opportunity for Cliff was to buy the sales business now or it would be sold to someone else. The rent roll would continue to operate in the same premises and the sales business would have a restraint of trade on property management in the meantime.

Cliff decided to take the opportunity despite his lack of hands-on experience. He brought in the existing sales manager as his partner to counter what he felt was his key weakness and in January 2005 officially became the principal of Ray White Coorparoo Sales. Cliff worked hard at establishing himself and learning every aspect of operating a real estate business - making mistakes, learning from them and slowly building a solid foundation.

Less than two years later came the next fork in the road - the original rent roll of 500 properties was now up for sale. With a price tag of around $1.5 million, Cliff was torn. Ultimately, he decided he wasn’t in a position to buy the property management business, instead focussing his resources elsewhere in the business. With the restraint of trade on property management due to continue for another year after the sale was finalised, Cliff continued to focus on building more depth in his sales business, which was beginning to show solid growth.

By late 2006, Cliff was free to start a property management business under the banner of Ray White Coorparoo and he decided to begin slowly. Recruiting an experienced property manager two days a week, in the first eight months they gained 20 managements. Cliff could see the potential for property management was enough to justify dedicating more resources.

Mid 2007, Cliff offered one of his salespeople the opportunity to move into property management full-time. She thrived along with the business although unfortunately didn’t last and Cliff continued to have trouble finding the right person to take charge of the rent roll.

In early 2008 Cliff re-evaluated his property management business again. Having had a significant turnover of staff in the department already, Cliff and his wife Juanita decided to team up professionally. Along the way, Cliff had parted ways with the partner he had brought into the business in the early days.

Juanita took over the property management business in the first quarter of 2008 and by the end of 2008, another full-time property manager had been recruited and the rent roll had grown to an astounding 137 properties.

Also during that year, Cliff had implemented Ray White’s Professional Property Management Business System - the set of systems and processes that he says gave the business structure and a solid foundation to grow from.

“When we started doing property management it was all ad-hoc. I guess we were just testing the waters. We didn’t have proper systems in place and that was only ever going to work for a short time.”

“I would say now looking back that implementing the Professional Property Management Business System was one of the three key drivers of our success, the other two being the opportunities of our area and the strength of the Ray White brand” Cliff said.

Evaluating what had happened during that extraordinary year, Cliff says 50% of the growth came via referrals from the sales team. The demographic of his area helped too - roughly 50% of properties in the area are owned by investors and roughly 50% are units. He says up until this point, they had only been “farming” - taking leads that came into the office and picking up managements from the sales team.

“The Ray White brand is strong and drew a lot of landlord enquiry without any effort. That, on top of the opportunities presented by the area’s demographics gave us a great environment to build our property management business from scratch.”

“A real backbone of the business’ success and our ability for growth now is the fact we are process driven and follow the tools inside the Ray White Professional Property Management Business System religiously - the online training, reporting and measurements” Cliff said.

At the beginning of 2009, Cliff realised to maintain the rate of growth they would need to start “hunting” instead of farming - going out and proactively chasing new managements and by the end of 2009 the rent roll had grown to 219. The team had grown to three property managers, with Cliff and Juanita taking the decision to allow extra capacity in staffing for continuing growth.

Impressively, their overall growth strategy was not simply about more managements, they were aiming for better managements and succeeding. During this time, the average management fee grew from $1100 per annum to $1595. This was achieved through targeting higher rent properties and focussing on the net figure achieved on each management.

Looking back, Cliff believes that with the benefit of hindsight he perhaps should have purchased the existing Ray White rent roll when it was offered to him in 2006. His reasons are not straightforward though - he says a large rent roll would have given him a fast-track to building depth in his sales business at the time.

“You have to have both businesses humming - when they’re working well in tandem there’s a great potential for cross referral. But I’m not sure I would buy a rent roll if it was offered to me now. We have done it the hard way; we now have a solid business on both sides of the fence.”

“Our plan is to grow the rent roll to 500 organically and then reassess where we’re at. It may be an appropriate time to buy, or we may decide to go on growing the business ourselves. You have to consider all the variables at the time.”
Cliff’s advice to other principals or would-be principals on the great “build or buy” rent roll debate is to look at each opportunity on a case-by-case basis.

“There are so many things to consider - cash-flow, whether you have the expertise to handle the sudden acquisition of multiple properties, the list goes on” Cliff says

“I can honestly say that being the principal of a real estate business is harder than it looks. There are so many different balls to juggle. Having said that, I ultimately have no regrets about my decision - it’s been incredibly rewarding.”

Every agent worth even half his salt knows the basic value of comparative sales data. Having access to good data from a decent research provider is not a differentiator or a luxury any more for Australian real estate businesses - it’s a critical part of doing business.

Not only do vendors expect to see comparative sales in a listing appraisal, there’s been increasing legislation from the ACCC and the Department of Fair Trading over recent years around hook pricing and underquoting in general. It means every agent needs to have a good comparable market analysis in their files to back up everything they do that has a number attached to it - appraisals, agency agreements, print ads, on-line ads, flyers and exchanges with prospective buyers just to name a few.

But according to Director of Property Data Solutions (pricefinder.com.au) Tom White, many agents are missing out on the other possible uses for historical sales data and the other information available from research providers. And in many cases, the data and information they’re already paying for is not being used to maximum benefit.

It’s becoming more obvious that prospecting is a fundamental key to real estate sales success. Not just at the beginning of a sales career, but always and forever. Agents who don’t prospect will quickly find themselves with a declining business and eventually, a declining income too. Prospecting has to be underpinned by a good database which is used for regular, useful communication. You can read more about that in this month’s article from Mark McLeod.

It’s also clear that any sort of mainstream marketing has become less effective over the years as consumers become more immune to traditional methods. Putting an advertisement in a paper or magazine is no longer sure to generate the level of enquiry it once may have and it’s not unusual to have a zero response rate from this type of approach.

Tom says via some research providers, it’s possible to search any particular area for properties that have been owned by the same person for longer than the average ownership in that area - a time frame which will of course vary from place to place. The resulting list will show those owners who may be more likely statistically to be selling in the short to medium term, as well as their names and the address for services.

Although privacy laws restrict agents from sending those owners direct mail-outs specifically addressed to them, Tom says there are other ways in which the information can be used effectively. Mail outs to these owners simply entitled “To the home owner” (or door knocking) do not breach any privacy laws and are far more targeted than the traditional method of just blanketing a geographical area.

Although some real estate agents believe that anything not specifically addressed to an individual will not get opened, the reality is, the success rate is as much about how compelling the information is as to whether or not it has a name on the front. Uninteresting information or information that’s not useful will get thrown away regardless, just as interesting information has a good chance of being read and possibly acted upon even if it’s not personally addressed.

Tom says pricefinder has recently introduced a new mapping tool which allows agents to effectively draw a boundary around the area they want to target, which could cover more than one suburb or bisect particular suburbs as well.

“Many agents still door knock - drawing up a list of the most likely prospects before you start is an excellent way to use that prospecting time effectively. Doorknocking a particular owner because you are aware they are statistically more likely to require your services does not breach any privacy laws” Tom said.

“Although we see many agents dismissing the opportunity to use this information for whatever reason, the ones that use it get great results and we’ve heard excellent feedback about success rates. Using factual data is a great way to sharpen up your prospect list.”

Tom says on top of prospecting, many successful principals and salespeople use data to manage their businesses as well as their customer’s expectations.

“When you understand what has really happened in a market, it’s easier to work out where the market might be heading. When you pull apart the data into quartiles, you’ll see different price segments with different trends and this starts becoming really powerful information.”

“It’s possible to compare what the most expensive house prices are doing compared to the middle of the range. You can also use market share tools to see how your business or personal market share is tracking against the local market.”

“All in all, when you’re paying a flat fee for data as our customers do, it makes sense to use every feature that can help your business. We run various continuing education programs, as would most data providers, to help our customers get the best out of their service. But not everyone is interested - as they say, you can lead the horse to water, but whether or not he drinks is up to him” Tom says.

“Data is not just a legal necessity, it’s about working smarter. Most agents use about 10% of what’s on offer and don’t even realise what they’re missing out on. It’s worth dedicating some time to looking at what is available - it just might be a pleasant surprise.”

Tom White has a strong international technology background spanning almost 20 years. Returning to Australia in 2001 to take the role of Chief Information Officer at the Ray White Group, Tom left to start Property Data Solutions (pricefinder.com.au) in 2004. PDS is Australia’s fastest growing real estate data provider.

Some interesting facts came out of a recent study we performed with Ray White Concierge which came as a bit of a surprise to me. One statistic in particular was particularly powerful; this research showed that around 70% of real estate agents who join our industry peak at year two, in terms of the number of sales they do. Actually they may well be making more money at this point - it’s common that the value of each transaction will increase as time goes by. But the reality is most agents at this stage are still skating on thin ice and the ice is getting thinner.

At this critical point, the agent’s business is actually in decline, although it may not yet be obvious to them that this is the case. There’s also of course a flow-on effect for the principal of the business in which they operate. In the study, we also found that the highest point of churn for staff is between two and four years into the agent’s career. It’s the danger period during which businesses most commonly lose staff and ironically, it’s also the common point at which businesses most successfully recruit agents who are coming across from other operators.

It’s clear from these results that most agents between two and four years into their career have declining businesses and are looking for a magical solution. In the trend towards moving agencies at that time, the agent is also clearly looking for someone else to blame other than their own actions (or lack of action).

The big question is why - why does the number of transactions drop off after year two for the vast majority of agents?

The answer is pretty straightforward in my opinion and it’ll be no surprise to anyone who knows me at all - it all comes back to prospecting and an effective database. When an agent first starts in our industry, they prospect hard. As soon as they start getting stock, the amount of prospecting starts dropping off until eventually, about 18 months to two years later, they reach the point where they’re barely prospecting at all. And despite what some people might think, this trend is not just about laziness.

As a new agent, the currency you use to prospect when you first start is time. Let’s face it, when you first start you have lots of it to spend. As time goes by and you pick up listings, stock robs you of the currency to prospect. At that point, if you’re going to continue to prospect, you have to use other currency - process, structure and investment in your business.

An new agent from the Gold Coast who today is one of the best real estate agents I’ve ever known, came to me seven months after he first started in real estate years ago and said “Mark, I’m getting so busy I don’t have time to prospect. I’m going to have to hire someone to do it for me.” He saw the problem and the solution straight away.

Unfortunately, his clear understanding what was happening is rare - when most agents start getting busier, they just focus on managing their stock and spend less and less time on prospecting. It’s almost like they think new business will take care of itself somehow.

To compound the problem, many of them don’t run an effective database, which as I continue to say underpins the whole process of prospecting. They just can’t see for themselves that prospecting is the key to being an effective salesperson and you can’t ever afford not to do it, no matter how good you are. Consequently, it’s also critical for a principal to make sure there’s an ongoing commitment to prospecting, otherwise there will be a constant churn of people coming and going from the business, all looking for that magical solution outside themselves which just doesn’t exist.

This need for effectively outsourcing prospecting was the whole reason behind us setting up Concierge which is a dedicated outbound call centre for real estate agents. You can read more about Concierge here.

Of course, Concierge is not the only possible solution and many agents have found effective solutions to prospect which suit their own needs. But however an agent chooses to prospect, it’s an absolutely clear message that prospecting is not an optional extra. Along with a solid database, it’s one of the two fundamentals to achieve success in real estate - unquestionably.

Mark Mcleod is one of the leading agents of change for Australia’s real estate industry. With an impressive track record spanning 25 years and a wide variety of roles, he has mentored some of Australia’s largest franchised and independent real estate businesses and is well known as a compelling industry speaker.

Today Mark is the Ray White Group’s Chief Executive of Growth, working with agents and businesses around Australasia to implement strategies for success.

But as Matt Sims would tell you, not only is it possible to be a non-selling principal, it’s the only way to create a real estate sales business which is worth something to sell and not just a different job with more headaches. Now running a corporate mentoring program for other business owners facing the same issue, Matt is happy to share the story of his own successful transition to non-selling principal.

Matt’s achievements in his Ferntree Gully real estate business can only be described as astounding. Located 29 km east of Melbourne’s CBD at the base of the Dandenong ranges, the business was 87th in the Ray White Victoria network with minimal market share when Matt bought it in September 2005.

Fast forward to late 2009; it’s now the sixth top office in the network (even though the average sale value in the area is much lower than many offices further down the ladder) with over 20% market share in the local area - and it’s still growing. While Matt was a “selling” principal in the early stages, within 18 months he had effectively extricated himself from personally listing properties, having built a capable team to replace himself.

To set the scene, Matt’s 17 year working career has been entirely within the real estate industry. A salesman for nearly 10 years and subsequently holding a corporate role for three, he spent a lot of time refining the basics before deciding to become a principal. He describes himself as an average salesman, although one suspects this statement is more indicative of his modesty than his ability - perhaps a rare trait in the property industry.

When he took over the Ferntree Gully business, he had one salesman with just a month’s experience. Over the next two months he doorknocked almost frenetically, working on building a database from his appraisals. His next step was to recruit a trainee and an experienced salesman who came from outside the area. For the rest of that year, Matt secured almost every listing for the office while his three staff conducted open homes, handled enquiries and worked buyers.

Three months after buying the business in December 2005, Matt had already finalised his exit strategy from working in the business and by the end of the following year planned to be totally dedicated to working on it. He spent that year personally building turnover while recruiting to fill the gap he knew he would leave in stepping away from sales. Another couple of trainees, a rookie and one experienced salesperson from a competitor later, he took the final plunge and happily, turnover held firm.

He has continued building on that initial success by recruiting a mix of experienced and non-experienced people over the next three years with excellent staff retention - in all that time only one person has not worked out and is no longer part of the team. In total, Matt now has 24 people working in the business including himself; eight salespeople, four P.A.’s, one trainee, four property management staff, a business development associate and five administrative staff.

Matt believes key driver of his success has been his ability to look at the business objectively and evaluate its strengths and weaknesses on a continual basis. At each stage he has dedicated his attention to the weakest link, working on improving that part of the business and strengthening it himself, then recruiting and training personnel to take over from him. Then it’s on to the next thing.

In the sales side of his business, Matt says the foundation of his success is an efficient database. Although he says he’s still learning in this area, he has strict rules about how often every client on the database must be contacted, either by phone or in person. On top of contact from the relevant salesperson, the office generates regular written communication to contacts on the database as well.

The team have agreed a set schedule for canvassing and there’s a mix of group and individual activity.

“The team has voted the prospecting program into place - we operate mostly as a democracy, although I do have certain expectations of outcome. But they have every say in how they get there” Matt says.

Matt also runs a set schedule of training and mentoring for his people, with six set meetings every week. He has fortnightly one-on-ones with most of his staff and monthly Key Performance Indicator reviews.

Fifteen months ago, Matt identified property management as the greatest weakness in his business and set about resolving the issues. He decided to learn everything about how to best operate in property management and fix this side of his business, step by step. For seven months, he worked in property management himself, growing the rent roll and putting effective systems and processes in place. His plan was to be out of the role by the end of 2009 and so far, he’s on track to do so. From a non-existent rent roll four years ago, Ferntree Gully now has 330 properties under management. Less than 100 of those have been purchased over the past two years and the rest are from organic growth.

Looking forward, Matt plans to again focus on the sales team in 2010, adding several new salespeople and growing turnover. He also has the goal to grow the database even further, believing this is fundamental to market share growth.

In his mentoring program for principals, Matt says he sees many people stuck in the rut of being a selling principal. He says the most common issue he hears those principals saying is that no-one can sell as well as them.

“From what I’ve seen, the biggest step to being a non-selling principal is making a mental adjustment.”

“Almost every principal in every office was the best salesperson once upon a time. A principal who wants to stop selling has to understand a few things; firstly, their salespeople don’t need to do it as well as they did and secondly, that they will probably need to replace themselves with three people, not one person” Matt says.

“The margins are different - instead of the office getting 100% of a principal’s commission, it get’s maybe 40% of a salesperson. So, if a principal is turning over $500k in gross commission, they will probably need three people writing $350K to replace him or herself.”

Matt says the key is to coordinate the replacement gradually so as not to shock the bottom line and forcing the principal back into selling.

“I see so many principals who have stepped away from selling two, three times and have ended up back on the tools when it just doesn’t work out. They haven’t set up a solid foundation and then end up thinking it’s just not possible to be a non-selling principal.”

Matt’s advice is to gradually recruit a mix of people - trainees, rookies and experienced people with a solid track record.

“I don’t hold much with trying to recruit “superstars” - I think it’s a mistake in the early stages. You’re better off breeding people, bringing them up on your way of doing business.”

“And lastly, temper it - initially at least you have to have a plan which will preserve your culture. You can think about the option of superstars later.”

No matter how much property management may not be appealing, it can’t be ignored - at least, if you have any intention of creating real wealth and not just income in your business. The importance and value of property management is described fully in a previous article HERE , but essentially, a rent roll is usually the main saleable asset of any note in a real estate business.

So, in accepting that property management is a necessary facet of your business, it’s obviously ideal to have it operating as efficiently as possible, with as little or as much attention as you’re willing to put into it.

Regardless of the size of the rent roll, it’s absolutely critical to have a business based system behind the business, not a people based system. There are businesses all over the country who have great property management departments, but which are totally dependent on the people who work in them. This makes those businesses vulnerable if the people are no longer there, whether it’s by choice or circumstance. Even worse, it can create an environment where the people working in the business hold the balance of power over the principal in relation to conditions, decisions and in some cases, even salaries.

The bottom line is, whatever system you choose, anyone should be able to walk into your property management business and follow the procedures, which should be clearly documented in a policies and procedures manual. There’s no need to re-create the wheel - most franchise groups offer their franchisees policy and procedures manuals and even if you’re an independent operator, there are various property management specialists you are able to licence manuals and software through. The manual is just the beginning though - it’s what you do with it that’s really going to count.

The software that you use should be tied into the procedures, creating total transparency. It should be possible to see the exact history of what has happened with each property as well as what needs to happen in the future. There are several good versions of property management software available which are designed to run daily tasks, although unfortunately as of the time of writing, none of them are completely self contained. They still rely on people putting the correct data in, such as scheduling inspections, but if used correctly, they will help improve business efficiency.

Next, you need the right people to drive the systems - people who want to see the business grow and prosper and will use the systems to drive the business forward with you.

Michelle Delaney, Property Management Executive of Ray White, says she has seen many cases where experienced team members with the wrong attitude can hold the balance of power inside an agency and the principal becomes unable to do anything but accede to their demands. These businesses are generally centred on one person who holds all the knowledge. She says principals who allow people based systems to continue place their biggest asset at risk.

Michelle has witnessed principals in the Ray White network seeing real change in their businesses over the past few years since the group began increasing their focus on property management. On top of the standard policies and procedures manual known as the “blueprint” the group now has a range of additional value-added services for their franchisees. One of the most popular offerings is the on-line training program, which attracts approx 2500 users every week.

“The professional system allows our businesses to recruit inexperienced people and train them through the Ray White Professional Development Program. We provide three live sessions a day, five days a week. The sessions cover technical skills and specialised skills and we also hold leadership and problem solving forums.”

“On top of that, we have a 24hr/7day helpdesk via our Intranet and dedicated business development executive support for our offices. The system is designed to help our principals create wealth through their rent roll” Michelle says.

Michelle adds that inexperienced people with the right attitude also won’t cost as much as experienced operators.

“Inexperienced people will still need to be trained and managed and the principal may need an experienced manager to do that if they don’t want to be heavily involved themselves. The leadership component is critical - you still need a driver” Michelle says.

“But a good set of systems which can be operated by less experienced people will ultimately result in a better business with improved margins, as well as the critical advantage of that business staying within the principal’s control.”

“When a principal has a solid foundation for their property management operation combined with professional external support, it’s much easier for them to achieve success. The real proof is in the attitude shift - our principals are open and willing to talk about property management now.”

On Barney’s initial evaluation of the local market, he found the target market was predominantly in the 35-45 age group; young, savvy, cool and sexy. This age segment also has the highest web penetration. This brought to light the first obvious issue - the brand Property Works had been operating under was perceived as old-school and didn’t match the demographic, who were more attracted to boutique and classy brands. Step one would be a new name for the business.

The concept Barney used behind the new brand was predominantly web-based. The unique message to the market was that expensive print-based marketing campaigns were unnecessary; Property Works promised to achieve excellent results with a marketing plan that would only cost $2200 instead of the $12-$15,000 campaigns their competitors pitted as “essential”. Every Property Works listing would be only advertised on the internet for the first few weeks and supported by database marketing, signage and direct mail. The message resonated with the audience and proved compelling.

This was how the new business was positioned, but it was critical the other components also backed up the promise. A new database tied into the re-branded website and regular client communications were designed to be full of valuable information with the right tone. The look and feel of the brand, website and all the associated marketing material had to be consistent with the message.

The launch of the new brand initially included a significant print component to create visibility. Today Property Works relies mainly on direct mail, as the brand has now developed good momentum. 85% of all serious buyers in the local area at any given time are on the Property Works database and 70% of all sales are to customers on that database.

These results speak for themselves; Property Works has a 95% clearance rate on properties auctioned over the past 12 months. Turnover has grown 2.5 times higher in the four years since re-branding. Property Works now has the opportunity to attend 60% of all listing appraisals and the office’s conversion rate is 50%. The average sale value has gone from about $670,000 to over $1million. The average commission rate has also increased - from 1.45%+GST to 2.2%+GST.

The other significant and positive side effect of having a more effective brand is in recruitment. Originally Property Works had only one other salesperson and had trouble attracting good agents. Now they have seven salespeople in total, some of whom have moved across from local offices that used to be the duo’s biggest competitors.

In the case of this particular business, moving to a predominantly on-line strategy proved to be a cost effective and unique selling proposition to the target market - and one that turned an average business into a dominant player in the local market in just a few years.
*Names have been changed

The rest is history.

Today, he and his brother Andrew Bell are co-principals of one of the largest and most successful real estate offices in the country. Ray White Surfers Paradise has been the number one office internationally in the Ray White network for the past 16 years, measured against almost 1000 businesses. With 220 staff on the team, the business turns over around $1 billion dollars annually and has approximately 27% market share in the local area.

Several factors have changed in their market since the pair originally made the decision to sell their inner city real estate business in Sydney and move to Queensland’s Gold Coast, almost 20 years ago. The area’s population was 200,000 when they first arrived and has since exploded, with the region now home to 550,000 people. And of course, there has been a corresponding boom in property prices.

But seeing and capitalising on the area’s growing opportunities has been the real driver of Greg and Andrew’s success; their commercial sales business is a key indicator of that talent. Ray White Commercial Gold Coast (RWCGC) now makes up a significant percentage of the turnover of their overall business. Employing 36 staff and with 520 commercial properties under management, RWCGC turns over more than $160 Million annually.

Greg and Andrew first started dabbling in commercial real estate 18 years ago, just two years after opening the Surfers Paradise residential office. It wasn’t until 6 years ago, though, that commercial became a significant focus.

“We just decided it was time to separate the commercial business from the residential business and get serious about it. In late 2003, we picked a date for our first serious commercial auction event - late January the following year. In November we started prospecting, determined to succeed. We just wouldn’t take no for an answer.”

“It worked. From then on, we had regular commercial auctions every six weeks. We had made a plan and we stuck to it” Greg says.

There are significant differences between operating a commercial and a residential real estate business and Greg believes keeping the two businesses separate is critical. He now specialises solely in commercial, while Andrew manages the residential side of the business.

“You can’t have the same staff switching between the two - it just doesn’t work. As with everything real estate related, good people are critical. Our commercial team are mostly in their 20’s or 30’s and full of energy.”

“We have a separate brand, separate offices and dedicated resources. Although there’s plenty of opportunity to cross-refer business and even utilise the same database, everything else is run separately” Greg says.

An attractive factor in a commercial real estate business is the opportunity to generate healthy margins. Both residential and commercial real estate businesses incorporate property management and sales, but commercial also has a separate function called commercial leasing.

Commercial leasing is the process of finding and securing the right tenant for commercial premises. Lease terms are longer than residential, generally 3-5 years. The fee for securing the tenant is generally 15% of the annual rent, which is significantly more than the average residential fee, equivalent to only one week’s rent.

When it comes to property management, the commercial agent’s fee is often lower than the residential equivalent at around 5%, but the agent’s role is quite different. Generally the tenant is responsible for the cost of maintenance and outgoings and the agent’s responsibility is to ensure payment of rent and those other liabilities are being properly fulfilled by the tenant.

Looking at sales, the commercial commission fee is again generally higher, with the rate capping out at around 3%+GST as opposed to the residential maximum of around 2.5%, exclusive of GST. With vendors often able to claim the GST component of the agent’s fee, it is not factored into the net commission.

On top of that, the average commercial sale value is generally higher. In the Gold Coast region for example, the average residential sale price is around $400K, whereas the average commercial sale price is between $800K and $1 Million.

RWCGC is an auction-only business, with campaigns running on average six weeks. The business’ clearance rate averages out at 53% under the hammer, rising to 60% when properties sold in the two weeks subsequent to auction day are included.

Greg says the fundamentals in commercial sales are not dissimilar to residential real estate and the foundation is a good marketing strategy. RWCGC utilizes print, on-line, signboard and database strategies to lift clearance rates and sales results.

Greg also says he believes there’s significant opportunity for principals in all areas to add commercial as another dimension to their residential businesses.

“There’s commercial everywhere - in every suburb and every area. I think people get intimidated by the prospect of operating in the commercial sphere, but the reality is it’s no harder than residential and there’s often a lot less competition, particularly in the suburbs.”

“We now dominate the market up to $10million in our area - we have found the big commercial brands are not that interested in that part of the market.’

“My advice to anyone contemplating going into commercial is, don’t do it half-heartedly. Dedicate resources to it and run it completely separately to your residential business. Do it properly and don’t be distracted. To succeed, you have to be focused and determined” Greg says.

“If you do it well, the results are well worth the effort.”